MDA Newsletter - End of September 2018

October 12, 2018

Ill jump straight to what most of you are probably thinking or at least have seen on the news - What has caused the sudden and sharp drop in Australian and Global stock markets?

 

The first thing to remember is that this has not been as sudden as you may have expected, its was February this year that a bit of fear entered the markets, this saw a short sharp drop in global markets followed by a period of of ups and downs and then around four months of steady positive returns.

 

My last newsletter explained that this volatility was caused by potential trade wars and the flattening of the yield curve in the very important Bond market. And what has caused this recent sell off? Pretty much the same.

 

The bond market (and yield curve) indicate that interest rates are going to be heading higher. This hasn't happened in a long time and there is concern that it could cause a recession in the US. So people panic and sell stocks they think are overvalued - in the US this is lead by the big tech companies. This brings the markets down.

 

The reality is that as it stands, most of the globally important economies are in good if not great shape. The US economy is growing year on year at 2.9%, Australia 3.4%, Europe 2.1%, China 6.7% and India at 8.2%. Even basket cases of yesteryear Greece is growing at 1.8%, Ireland 9%, Italy 1.2% and Portugal at 2.3%.

 

This market correction is one based on future concerns and not fundamental reality, and therefore nothing to be over concerned about. As I write this, the markets are already rebounding and are now in positve territory.

 

What are we doing about it?

 

Your portfolio has for over a year now had higher than normal weighting to cash and funds that are defensive in nature. So we have been preparing for the inevitable which is, when markets go up for an extended period, they always come down a bit.

 

Its also worth remembering the strong returns we have had in the preceding five years - the US market is up about 69%!

 

For patient investors like myself, this sell off provides me with great buying opportunities. That cash I mentioned that has built up in your portfolio, has been put to work in the last few days.

 

If you have a few more minutes to read, Id recommend at the very minimum reading the 'Conclusion' of the following article published by Hyperion, one of the fund managers you are invested with. Click here for the article. It summarises their long term view and a good reminder for the need of active portfolio management.

 

And finally, this quarter will be the last of our Factsheets as per below. Starting around the end of December, you will receive a notification from North that your quarterly report is ready to be downloaded from Northonline. Simply log on and the report will be in your filing cabinet. It will give you more personalised information on you portfolio. Ill still be writing this blog and updating you on any important details.

 

 

For an update on the performance and asset allocation for the last quarter, please click below on the factsheets.

 

Defensive Factsheet

Balanced Factsheet

High Growth Factsheet

 

 

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